Index Methodology
As of December/2015
CBOE Strategy Benchmark Indexes
The CBOE Russell 2000 Conditional BuyWrite Index (BXRC)
THE CBOE Russell 2000 Conditional BuyWrite Index (BXRC)
Introduction:
The CBOE Russell 2000 Conditional BuyWrite Index (BXRCSM Index) is a benchmark index designed to track the
performance of a hypothetical covered call strategy. The BXRC Index is similar in design to the CBOE Russell 2000
BuyWrite Index (BXRSM Index), however the difference in methodology is as follows: if the CBOE Russell 2000
Volatility Index (RVXSM Index) level is greater than or equal to 20 at 9:30 am ET (market open) on the Roll Day (as
defined below), the methodology would be a standard covered call strategy, which establishes a long position indexed
to the Russell 2000® Index and writes a unit of an At-the-Money (ATM) monthly RUT Call option. If the RVX Index
level is below 20 at 9:30 am ET on the Roll Day, the strategy only writes half a unit of an ATM monthly RUT Call
option while the long Russell 2000 Index position remains unchanged.
Index Design:
On January 19, 2001, the initial roll date of the BXRC Index, a unit of an ATM monthly RUT Call option is written
and a unit of the Russell 2000 Index is purchased simultaneously. The BXRC Index is designed to write the ATM RUT
Call option as follows: if the RVX Index level at the market open is equal to or above 20, one unit of the RUT Call
option is written; however if the RVX Index level at the market open is below 20, only half a unit of the RUT Call
option is written. On the initial roll date, the RVX Index level was above 20 so one unit of the RUT Call option was
written. The strike of the ATM RUT Call option is the first available strike above the last disseminated value of the
Russell 2000 Index before 11:00 am ET. The premium collected from writing the RUT Call option is the volume
weighted average trade price between 11:30 am and 12:00 pm ET (VWAP). CBOE calculates the VWAP in two steps:
first, CBOE excludes trades in the new RUT Call option between 11:30 am and 12:00 pm ET that are identified as
having been executed as part of a “spread”; and second, CBOE calculates the weighted average of all remaining
transaction prices of the new RUT Call option between 11:30 am and 12:00 pm ET, with weights equal to the fraction
of total non-spread volume transacted at each price during this period. If there is no trade in the RUT Call option
during the VWAP period, the last bid quote of the RUT Call option before 12:00 pm ET is used. As the long Russell
2000 Index position is assumed to be entered into simultaneously with the short position of the RUT Call option, the
weighted average price of the Russell Index is calculated using disseminated values of the Russell Index based on the
same time and weights used to calculate the RUT Call option VWAP. Similarly, if there is no trade of the RUT Call
option during the VWAP period, the last disseminated value of the Russell 2000 Index before 12:00 pm ET is used. If
the VWAP of the Russell 2000 Index and the last value before 12:00 pm ET are both not available, the last
disseminated value of the Russell 2000 Index before 11:00 am ET is used.
Typically, on the third Friday (Roll Day) of every month since the initial roll date, the RUT Call option settlement is at
9:30 am ET against the Special Opening Quotation of the Russell 2000 Index (SOQ). The option settlement value is
determined as Call_old settle = Max (0, SOQ t – K old). A new ATM monthly RUT Call option will be subsequently
written. Following the same rule as the initial roll date, the unit of the new RUT Call option written would be
determined by the RVX Index level at the market open, and the strike of the new RUT Call option would be the first
available strike above the last disseminated value of the Russell 2000 Index before 11:00 am ET. The premium
collected from the RUT Call option would be the VWAP between 11:30 am and 12:00 pm ET, or the last bid quote of
the RUT Call option before 12:00 am ET if there is no trade during the VWAP period. The long Russell 2000 Index
position remains unchanged.
Index Calculation:
The BXRC Index value is calculated by CBOE in real-time, every 15 seconds.
On each trading day excluding roll dates, the daily return of the index is calculated as:
R t = (RUT t + DIV t – Unit * Call t) / (RUT t-1 – Unit * Call t -1)
Where RUT t is the last disseminated value of the Russell 2000 Index on day t, DIV t is the dividend, Call t is the
average of the last bid-ask quote of the RUT Call option before 4:00 pm ET, and Unit is the unit of the RUT Call
option. Unit can be either 1 or 0.5, depending on the RVX Index level at the market open on the last Roll Day when the
RUT Call option was written. The terms with subscript t-1 stand for the values on the previous day.
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THE CBOE RUSSELL 2000 Conditional BuyWrite Index (BXRC)
On Roll Days, the return is calculated in three steps:
First, calculate the return from the previous day market close to morning settlement of the expiring option (9:30 am
ET):
R1 = (SOQ t + DIV t – Unit old * Call_old settle) / (RUT t-1 – Unit old * Call_old t-1)
Call_old settle = Max (0, SOQ t – K_old)
Where SOQ t is the Special Opening Quotation of the Russell 2000 Index on the Roll Day, DIV t is the dividend,
Call_old settle is the settlement value of the expiring RUT Call option, K_old is the strike price of the expiring RUT Call
option, and Call_old t-1 is the average of the last bid-ask quote of the RUT Call option before 4:00 pm ET on the
previous day. Unit old is the unit of the expiring RUT Call option.
Second, calculate the return from morning settlement (9:30 am ET) to the moment the new RUT Call option position is
deemed sold:
R2 = SOQ t / RUT vwap
Where SOQ t is the Special Opening Quotation of the Russell 2000 Index on the Roll Day, RUT vwap is the weighted
average value of the Russell 2000 Index, calculated using disseminated values of the Russell 2000 Index based on the
same time and weights used to calculate the new RUT Call option VWAP. Note that if there are no trades of the RUT
Call option during the VWAP period, the last disseminated value of the Russell 2000 Index before 12:00 pm ET is
used. If the VWAP of the Russell 2000 Index and the last value before 12:00 pm ET are both not available, the last
disseminated value of the Russell 2000 Index before 11:00 am ET is used.
Lastly, calculate the return from the moment the new RUT Call option is deemed sold to market close:
R3 = (RUT t – Unit new * Call_new t) / (RUT vwap – Unit new * Call_new vwap)
Where Call_new vwap is the VWAP price of the new ATM RUT Call option, Call_new t is the average of the last bidask quotes of the RUT Call option before 4:00 pm ET, and Unit new is the unit of the expiring RUT Call option, Unit new
is either 1 or 0.5, depending on the RVX Index level at the market open on the Roll Day, RUT t is the last disseminated
value of the Russell 2000 Index on Roll Day t, and RUT vwap is the weighted average value of the Russell 2000 Index,
calculated using disseminated values of the Russell 2000 Index based on the same time and weights used to calculate
the new RUT Call option VWAP.
The product of the three parts is the total return of the Roll Day:
R t = R1 * R2* R3
Once the daily return is calculated for every trading day, the daily index value is calculated as:
INDEX t = INDEX t-1 * R t
THE CBOE RUSSELL 2000 Conditional BuyWrite INDEX (BXMC)
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available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One
North Wacker Drive, Suite 500, Chicago, Illinois 60606. Supporting documentation for claims,
comparisons, recommendations, statistics or other technical data is available by calling 1-888-OPTIONS,
sending an e-mail to help@cboe.com, or by visiting
www.cboe.com/CLLZ.